Spotify takes on Apple with Subscription Fee War

If you’ve made an app or used it, you will probably know that app-stores make money through commissions.

If you pay to download/upgrade an app, the store gets a percentage.

At Apple, that number is 30%.

The battle between Apple and Spotify has reached enormous proportions where both companies are fighting to keep a larger chunk of Spotify’s earnings.

Spotify, an app that provides access to millions of songs that you can listen to, decided that it didn’t want to share the spoils of their success with Apple.

Since the launch of Apple’s own music app – Apple Music – Spotify has been facing a huge challenge.

Even if Apple Music has to pay the Apple store money for each subscriber, it’s all in the family!

That puts other music apps at a slight disadvantage – they are essentially paying 30% to their competitor – albeit not directly.

What Caused the Battle of the Bands

Originally, Spotify had a $9.99/month subscription service for people who wished to upgrade their apps.

In 2014, they pushed that price up to $12.99, thereby ensuring that the company received $9.99 for every app upgrade.

However, for those who went to upgrade their app through the Spotify website, the cost was still $10.

Essentially, Spotify wanted to make 10 bucks per upgrade, and decided to offer a premium price to those who chose to give Apple 30% of their earnings.

So in June 2015, Spotify actively went out of its way to piss Apple off, asking people not to pay an additional 30% of subscription fee on the Apple app store.

Instead, they could upgrade the app directly through Spotify’s website, thereby bypassing Apple’s payment system and foregoing the 30% fee.

So what was $12.99 on Apple would be $9.99 on Spotify!

Apple didn’t like that One Bit

Obviously!

Why would the company prefer someone using their platform and promoting a different payment process that would rob Apple out of their commission?

Apple has a clause in its app-store application contract focussed specifically on the payment modes an app can use.

You have to use Apple’s payment platform to upgrade your app – nothing else is allowed!

This, while anti-competitive in nature, is a price that most apps choose to pay to gain access to the millions of people who download apps from Apple’s app store.

For those who are interested, here’s the actual clause itself:

3.1.1 In-App Purchase: If you want to unlock features or functionality within your app, (by way of example: subscriptions, in-game currencies, game levels, access to premium content, or unlocking a full version), you must use in-app purchase. Apps may not include buttons, external links, or other calls to action that direct customers to purchasing mechanisms other than IAP. Any credits or in-game currencies purchased via IAP must be consumed within the app and may not expire, and you should make sure you have a restore mechanism for any restorable in-app purchases. Please remember to assign the correct purchasability type or your app will be rejected. Apps should not directly or indirectly enable gifting of IAP content, features, or consumable items to others. Apps distributed via the Mac App Store may host plug-ins or extensions that are enabled with mechanisms other than the App Store.

3.1.2 Subscriptions: Auto-renewing subscriptions should only be offered using in-app purchase and may only be used for periodicals (e.g. newspapers, magazines), business apps (e.g. enterprise, productivity, professional creative, cloud storage), media apps (e.g. video, audio, voice, photo sharing), and other approved services (e.g. dating, dieting, weather). These subscriptions must last a minimum of 7 days and be accessible from all of the user’s devices where the app is available. You may offer subscriptions that are shared across your own apps, but these subscriptions may not extend to third party apps or services.

To deter Spotify from continuing this – what they consider – illegal practice, Apple decided to reject the latest upgrade to Spotify’s app.

Spotify Replied with a Slap

When you are fighting with the mother-ship over rights to stay on board, you may have to look for certain loopholes.

Spotify decided to use one – they have completely turned subscription upgrades off through the app store.

So now, people who have been using a free app will not be able to upgrade to a premium version through the app store and those who have premium versions will be downgraded at the end of their subscription month.

Now, if you would like to upgrade your Spotify app to a premium version, you can only do so through the Spotify website.

They have cut Apple off at the source – no upgrades, no fees!

Apple’s letter for rejecting the Spotify upgrade specifically stated that if the music app wants to use the app to acquire new customers and sell subscriptions, they need to use Apple’s billing system.

Now, Spotify says that the subscription rules do not apply to the app as they are no longer offering subscriptions on Apple.

A Battle within an Anti-Competition War

For those who feel Apple are justified in their stand must realise that there is a much larger picture – one where companies are driving competitors out of the market simply because they own the marketplace.

Apple Music costs $9.99 a-month or $14.99 a-month for a family subscription of 6-people.

The latter is lower than the commission it would earn from 6-subscription upgrades on the Spotify app.

When a company is earning more from its competitor’s subscription fee than it is from its own app, it is definitely violating some competition practices somewhere.

Apple, Google and Amazon – all have come under the microscope for their app store practices of eating into their competitors’ revenue.

The same rules do not apply to their own brands for obvious reasons.

For apps like Spotify and Tidal, this has been a constant flashpoint ever since Apple launched its own music app.

Even though Apple has dropped its subscription-fee commission to 15%, Spotify is already bleeding from its earlier battle wounds and is seemingly in no mood to give in.

Any money paid out to a competitor is a loss, and when that competitor is Apple, you don’t want to give an inch.

Do you feel Spotify is right to stand it’s ground against Apple’s anti-competitive practices? Or is Apple in the right for providing a platform with millions of customers to app-makers? Tell us your thoughts.

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